30 October 1997 External T.I. 9725495 - REIMBURSEMENT OF RENT TO TESTAMENTARY TRUST

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principales Questions:

Whether a reimbursement by an income beneficiary for rental payments made by a "testamentary trust" will be regarded as a contribution to the trust for the purpose of the definition of "testamentary trust" in subsection 108(1) of the Income Tax Act (the "Act").

Position Adoptée:

Question of fact. It would be reasonable to conclude that the income beneficiary has not contributed property to the trust for the purpose of the definition of "testamentary trust" in subsection 108(1) of the Act if the terms of the trust provide that all income is payable on an annual basis and if the reimbursement consists of refunding an honest over-payment of trust's income received by the income beneficiary. The determination as to whether or not a reimbursement by an income beneficiary consists of refunding an honest over-payment of trust's income is a question of fact that can only be determined following a review of all of the relevant facts pertaining to the particular situation.

Raisons POUR POSITION ADOPTÉE:

ccm 931918, 972103 961313

5-972549

XXXXXXXXXX J. Desparois, M.Fisc.

Attention: XXXXXXXXXX

October 30, 1997

Dear Sirs/Madams:

Re: Reimbursement of Rent to Testamentary Trust

We are replying to your facsimile of September 23, 1997 wherein you requested our opinion as to whether a reimbursement by an income beneficiary for rental payments made by a "testamentary trust" will be regarded as a contribution to the trust for the purpose of the definition of "testamentary trust" in subsection 108(1) of the Income Tax Act (the "Act").

As explained in Information Circular 70-6R3, it is not the Department's practice to comment on proposed transactions other than in the form of advance income tax rulings. Taxpayers seriously contemplating proposed transactions are best advised to seek a formal ruling, submitting a complete statement of facts and issues as well as copies of all relevant documents. Should your situation involve completed transactions, you should submit all relevant facts and documentation to the appropriate Tax Services Office for their views. We are therefore not in a position to give you a definite response as to the application of the provisions of the Act. However, we can offer you the following general comments which may be of assistance although, in certain circumstances, they may not be appropriate to your specific situation.

The expression "testamentary trust" is defined in subsection 108(1) of the Act. Where a trust is created after November 12, 1981, paragraph (b) of this definition provides essentially that a trust will lose its status as a "testamentary trust" where a property is contributed to the trust otherwise than by an individual on or after the individual's death and as a consequence thereof. For example, it is our opinion that a loan to a trust or a purchase for full face value by a trust does not constitute a contribution for the purpose of the definition of "testamentary trust" in subsection 108(1) of the Act.

In addition, we reiterate our position expressed in the technical interpretation of November 19, 1996 (our reference #9613135), where we concluded that reimbursements of medical expenses by a health plan to the trust constitute contributions of property to the trust and thus, taint the status of a testamentary trust. As to whether or not our opinion (our reference #9613135) would change if the payments by the trust come out of income rather than capital is a question of fact that would require a complete analysis of the particular trust indenture.

Furthermore, it is our opinion that where an income beneficiary reimburses a trust for an over-payment of income received from the trust, it would be reasonable to conclude that the income beneficiary has not contributed property to the trust for the purpose of the definition of "testamentary trust" in subsection 108(1) of the Act if the terms of the trust provide that all income is payable on an annual basis and if the reimbursement consists of refunding an honest over-payment of trust income received by the income beneficiary. The determination as to whether or not a reimbursement by an income beneficiary consists of refunding an honest over-payment of trust income is a question of fact that can only be determined following a review of all of the relevant facts pertaining to the particular situation.

These comments represent our opinion of the law as it applies generally. As indicated in paragraph 22 of Information Circular 70-6R3 dated December 30, 1996, this opinion is not a ruling and accordingly, is not binding on the Department.

Yours truly,

Marc Vanasse, CA
for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch